Taxation of Intangible Assets

Taxation of Intangible Assets: Examining the challenges in

taxing intangible assets and evaluating potential

approaches to address them.

Introduction

The digitalization of the economy and growth of technology over the past

few decades has led to intangible assets like patents, copyrights,

trademarks, software etc. playing an increasingly important role in

businesses. According to the OECD, intangible assets now account for over

80% of the value of companies on the S&P 500 index. However, as opposed

address these challenges.

Challenges in Taxing Intangible Assets

Locationless and Mobile Nature

One of the primary challenges with intangible assets is their lack of physical

presence and highly mobile nature which makes establishing their source

and location difficult for tax purposes. Unlike physical assets which are

located in a particular jurisdiction, intangible assets can often be used from

multiple locations simultaneously through digital means. Their value is also

not dependent on any single factor like location of employees or customers.

This makes assigning the jurisdiction and apportionment of taxing rights

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

scope for manipulation of transfer pricing between related entities. It allows

for strategic undervaluing/overvaluing of intangibles transferred across

jurisdictions to lower the tax base. The uncertainty also makes accurate

monitoring and enforcement by tax authorities difficult.

Creation of Permanent Establishments

While physical presence remains the general rule under tax treaties for

creating a taxable presence (permanent establishment), digital PE concepts

than physical operations.

Expenditure on Development Less Visible

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

for tax incentives/allowances in many countries, establishing actual costs

incurred and their correlation to value created can be difficult. Related

entities may try to understate qualifying R&D spending in high-tax locations

to reduce incentives/allowances claimed. The lack of visibility and

traceability of intangible development expenditure poses challenges for tax

authorities in ascertaining the correct quantum of expenditure eligible for tax

profits of a multi-national group from intangibles are apportioned based on a

pre-determined formula. This could include factors like apportionment based

on sales, employees or tangible assets in each market jurisdiction.

complexity in application to diverse business models and potential for double

taxation still need to be addressed. However, it could serve as an interim

solution pending wider consensus on the preferred long term approach for

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

palatable than unilateral measures. However, Digital Services Taxes may still

instrument.

This was the route adopted by the OECD/G20 Inclusive Framework with the

Multi-lateral Instrument (MLI) for treaty related BEPS issues. A similar MLI

focusing specifically on amending articles around intangibles could help

Mandatory Disclosure Rules

To address difficulties in monitoring related party transactions involving

intangible transfers and ascertaining appropriate transfer pricing, mandatory

disclosure rules for multinationals could help. This could include reporting of

intangible holdings, licenses and transfer pricing policies along with high-

level financial details for tax authorities to identify risks.

'Patent Box' regimes are prevalent in many countries as an incentive for local

IP development and commercialization.

However, design issues around subjective eligibility criteria, favoring some

industries over others and interaction with transfer pricing need to be

addressed to leverage Patent Boxes positively. If adopted with coherence

across jurisdictions after addressing such issues of incompatibility, Patent

Boxes could aid resolution of some challenges in taxing income from

patented intangibles.

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

Regular monitoring and updates will also be necessary as business models

mandatory disclosure and coordinated Patent Box regimes evaluated in this

paper could help address the key issues if adopted through a framework of

stakeholder consultations and regular reviews. No single approach may be a

panacea but a combination with emphasis on coordination holds promise if

implemented judiciously after addressing potential compatibility issues.

Continued work at the OECD on these aspects thus remains important to

establish a balanced international consensus-based framework for taxing the

globally significant and dynamic intangible assets of the digital age.

trademarks, software etc. playing an increasingly important role in

businesses. According to the OECD, intangible assets now account for over

80% of the value of companies on the S&P 500 index. However, as opposed

to tangible assets like plant and property which has established principles for

taxation, taxation of intangible assets poses unique challenges given their

intangible assets and evaluates potential approaches that can be taken to

address these challenges.

Locationless and Mobile Nature

One of the primary challenges with intangible assets is their lack of physical

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

Subjective Valuation

scope for manipulation of transfer pricing between related entities. It allows

for strategic undervaluing/overvaluing of intangibles transferred across

jurisdictions to lower the tax base. The uncertainty also makes accurate

monitoring and enforcement by tax authorities difficult.

Creation of Permanent Establishments

While physical presence remains the general rule under tax treaties for

creating a taxable presence (permanent establishment), digital PE concepts

through significant digital presence are still not universally accepted.

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

for tax incentives/allowances in many countries, establishing actual costs

incurred and their correlation to value created can be difficult. Related

entities may try to understate qualifying R&D spending in high-tax locations

Potential Approaches to Address Challenges

Formulary Apportionment

on sales, employees or tangible assets in each market jurisdiction.

raise its own challenges. Issues around lack of an agreed common formula,

complexity in application to diverse business models and potential for double

taxation still need to be addressed. However, it could serve as an interim

solution pending wider consensus on the preferred long term approach for

taxing intangibles.

Digital Services Taxes

economy, many countries have proposed unilateral digital services taxes

assert taxing rights, bilateral solutions through tax treaties may be more

consensus on new articles for taxing intangibles, an effective approach could

instrument.

This was the route adopted by the OECD/G20 Inclusive Framework with the

Multi-lateral Instrument (MLI) for treaty related BEPS issues. A similar MLI

focusing specifically on amending articles around intangibles could help

achieve global consensus and an updated treaty framework on taxing

intangibles in a coordinated manner.

Mandatory Disclosure Rules

To address difficulties in monitoring related party transactions involving

intangible transfers and ascertaining appropriate transfer pricing, mandatory

disclosure rules for multinationals could help. This could include reporting of

Patent Box Regimes

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

IP development and commercialization.

However, design issues around subjective eligibility criteria, favoring some

bodies like the OECD/UN to arrive at minimum standards through stakeholder

consultations. Important aspects are co-ordinated implementation timelines,

Regular monitoring and updates will also be necessary as business models

and technologies evolve rapidly. With continued work on the above

approaches through an inclusive framework, challenges in taxing the

through significant digital presence are still not universally accepted.

Intangible assets today can create economic allegiance without physical

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

benefits or subject to capitalization.

Potential Approaches to Address Challenges

currently used in transfer pricing to formulary apportionment wherein the

profits of a multi-national group from intangibles are apportioned based on a

pre-determined formula. This could include factors like apportionment based

on sales, employees or tangible assets in each market jurisdiction.

While it resolves issues around discretion in transfer pricing by doing away

with the subjective 'arm's length' analysis, formulary apportionment does

raise its own challenges. Issues around lack of an agreed common formula,

complexity in application to diverse business models and potential for double

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

Multi-lateral Instrument for Tax Treaties

be amendments to the existing tax treaty network through a multi-lateral

instrument.

This was the route adopted by the OECD/G20 Inclusive Framework with the

Multi-lateral Instrument (MLI) for treaty related BEPS issues. A similar MLI

focusing specifically on amending articles around intangibles could help

achieve global consensus and an updated treaty framework on taxing

intangibles in a coordinated manner.

Mandatory Disclosure Rules

disclosure rules for multinationals could help. This could include reporting of

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

IP development and commercialization.

patented intangibles.

Any long-term solutions will require involvement of inter-governmental

Regular monitoring and updates will also be necessary as business models

balanced and equitable manner.

Conclusion

and subjective valuation. While unilateral measures have been adopted by

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

paper could help address the key issues if adopted through a framework of

stakeholder consultations and regular reviews. No single approach may be a

panacea but a combination with emphasis on coordination holds promise if

80% of the value of companies on the S&P 500 index. However, as opposed

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

Unlike physical assets which can be valued more objectively based on factors

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

scope for manipulation of transfer pricing between related entities. It allows

Creation of Permanent Establishments

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

benefits or subject to capitalization.

currently used in transfer pricing to formulary apportionment wherein the

with the subjective 'arm's length' analysis, formulary apportionment does

complexity in application to diverse business models and potential for double

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

be amendments to the existing tax treaty network through a multi-lateral

instrument.

intangibles in a coordinated manner.

intangible holdings, licenses and transfer pricing policies along with high-

level financial details for tax authorities to identify risks.

risk assessment, focused audits and dispute resolution. If designed

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

across jurisdictions after addressing such issues of incompatibility, Patent

Boxes could aid resolution of some challenges in taxing income from

patented intangibles.

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

In conclusion, taxation of the growing intangible economy poses unique

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

The digitalization of the economy and growth of technology over the past

few decades has led to intangible assets like patents, copyrights,

trademarks, software etc. playing an increasingly important role in

taxation, taxation of intangible assets poses unique challenges given their

characteristics. While some countries have taken steps to address them,

globally consistent and coherent rules for taxing intangible assets are still

lacking. This paper examines some of the key challenges involved in taxing

intangible assets and evaluates potential approaches that can be taken to

address these challenges.

Challenges in Taxing Intangible Assets

located in a particular jurisdiction, intangible assets can often be used from

multiple locations simultaneously through digital means. Their value is also

not dependent on any single factor like location of employees or customers.

This makes assigning the jurisdiction and apportionment of taxing rights

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

through significant digital presence are still not universally accepted.

Intangible assets today can create economic allegiance without physical

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

benefits or subject to capitalization.

Potential Approaches to Address Challenges

currently used in transfer pricing to formulary apportionment wherein the

profits of a multi-national group from intangibles are apportioned based on a

pre-determined formula. This could include factors like apportionment based

on sales, employees or tangible assets in each market jurisdiction.

While it resolves issues around discretion in transfer pricing by doing away

with the subjective 'arm's length' analysis, formulary apportionment does

raise its own challenges. Issues around lack of an agreed common formula,

complexity in application to diverse business models and potential for double

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

In conclusion, taxation of the growing intangible economy poses unique

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

The digitalization of the economy and growth of technology over the past

few decades has led to intangible assets like patents, copyrights,

trademarks, software etc. playing an increasingly important role in

taxation, taxation of intangible assets poses unique challenges given their

characteristics. While some countries have taken steps to address them,

globally consistent and coherent rules for taxing intangible assets are still

lacking. This paper examines some of the key challenges involved in taxing

intangible assets and evaluates potential approaches that can be taken to

address these challenges.

Challenges in Taxing Intangible Assets

located in a particular jurisdiction, intangible assets can often be used from

multiple locations simultaneously through digital means. Their value is also

not dependent on any single factor like location of employees or customers.

This makes assigning the jurisdiction and apportionment of taxing rights

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

through significant digital presence are still not universally accepted.

Intangible assets today can create economic allegiance without physical

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

benefits or subject to capitalization.

Potential Approaches to Address Challenges

currently used in transfer pricing to formulary apportionment wherein the

profits of a multi-national group from intangibles are apportioned based on a

pre-determined formula. This could include factors like apportionment based

on sales, employees or tangible assets in each market jurisdiction.

While it resolves issues around discretion in transfer pricing by doing away

with the subjective 'arm's length' analysis, formulary apportionment does

raise its own challenges. Issues around lack of an agreed common formula,

complexity in application to diverse business models and potential for double

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

Multi-lateral Instrument for Tax Treaties

be amendments to the existing tax treaty network through a multi-lateral

instrument.

This was the route adopted by the OECD/G20 Inclusive Framework with the

Multi-lateral Instrument (MLI) for treaty related BEPS issues. A similar MLI

focusing specifically on amending articles around intangibles could help

achieve global consensus and an updated treaty framework on taxing

intangibles in a coordinated manner.

Mandatory Disclosure Rules

disclosure rules for multinationals could help. This could include reporting of

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

IP development and commercialization.

patented intangibles.

Any long-term solutions will require involvement of inter-governmental

Regular monitoring and updates will also be necessary as business models

balanced and equitable manner.

Conclusion

and subjective valuation. While unilateral measures have been adopted by

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

paper could help address the key issues if adopted through a framework of

stakeholder consultations and regular reviews. No single approach may be a

panacea but a combination with emphasis on coordination holds promise if

80% of the value of companies on the S&P 500 index. However, as opposed

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

Unlike physical assets which can be valued more objectively based on factors

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

scope for manipulation of transfer pricing between related entities. It allows

Creation of Permanent Establishments

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

benefits or subject to capitalization.

currently used in transfer pricing to formulary apportionment wherein the

with the subjective 'arm's length' analysis, formulary apportionment does

complexity in application to diverse business models and potential for double

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

be amendments to the existing tax treaty network through a multi-lateral

instrument.

intangibles in a coordinated manner.

intangible holdings, licenses and transfer pricing policies along with high-

level financial details for tax authorities to identify risks.

risk assessment, focused audits and dispute resolution. If designed

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

across jurisdictions after addressing such issues of incompatibility, Patent

Boxes could aid resolution of some challenges in taxing income from

patented intangibles.

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

In conclusion, taxation of the growing intangible economy poses unique

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

The digitalization of the economy and growth of technology over the past

few decades has led to intangible assets like patents, copyrights,

trademarks, software etc. playing an increasingly important role in

benefits or subject to capitalization.

currently used in transfer pricing to formulary apportionment wherein the

with the subjective 'arm's length' analysis, formulary apportionment does

complexity in application to diverse business models and potential for double

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

be amendments to the existing tax treaty network through a multi-lateral

instrument.

intangibles in a coordinated manner.

intangible holdings, licenses and transfer pricing policies along with high-

level financial details for tax authorities to identify risks.

risk assessment, focused audits and dispute resolution. If designed

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

across jurisdictions after addressing such issues of incompatibility, Patent

Boxes could aid resolution of some challenges in taxing income from

patented intangibles.

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

In conclusion, taxation of the growing intangible economy poses unique

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

The digitalization of the economy and growth of technology over the past

few decades has led to intangible assets like patents, copyrights,

trademarks, software etc. playing an increasingly important role in

taxation, taxation of intangible assets poses unique challenges given their

characteristics. While some countries have taken steps to address them,

globally consistent and coherent rules for taxing intangible assets are still

lacking. This paper examines some of the key challenges involved in taxing

intangible assets and evaluates potential approaches that can be taken to

address these challenges.

Challenges in Taxing Intangible Assets

located in a particular jurisdiction, intangible assets can often be used from

multiple locations simultaneously through digital means. Their value is also

not dependent on any single factor like location of employees or customers.

This makes assigning the jurisdiction and apportionment of taxing rights

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

through significant digital presence are still not universally accepted.

Intangible assets today can create economic allegiance without physical

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

Intangibles are generally self-created through substantial R&D or marketing

expenditures instead of discrete purchases. While such expenditure qualifies

benefits or subject to capitalization.

Potential Approaches to Address Challenges

currently used in transfer pricing to formulary apportionment wherein the

profits of a multi-national group from intangibles are apportioned based on a

pre-determined formula. This could include factors like apportionment based

on sales, employees or tangible assets in each market jurisdiction.

While it resolves issues around discretion in transfer pricing by doing away

with the subjective 'arm's length' analysis, formulary apportionment does

raise its own challenges. Issues around lack of an agreed common formula,

complexity in application to diverse business models and potential for double

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

Multi-lateral Instrument for Tax Treaties

be amendments to the existing tax treaty network through a multi-lateral

instrument.

This was the route adopted by the OECD/G20 Inclusive Framework with the

Multi-lateral Instrument (MLI) for treaty related BEPS issues. A similar MLI

focusing specifically on amending articles around intangibles could help

achieve global consensus and an updated treaty framework on taxing

intangibles in a coordinated manner.

Mandatory Disclosure Rules

disclosure rules for multinationals could help. This could include reporting of

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

IP development and commercialization.

patented intangibles.

Any long-term solutions will require involvement of inter-governmental

Regular monitoring and updates will also be necessary as business models

balanced and equitable manner.

Conclusion

and subjective valuation. While unilateral measures have been adopted by

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

paper could help address the key issues if adopted through a framework of

stakeholder consultations and regular reviews. No single approach may be a

panacea but a combination with emphasis on coordination holds promise if

80% of the value of companies on the S&P 500 index. However, as opposed

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

Unlike physical assets which can be valued more objectively based on factors

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

scope for manipulation of transfer pricing between related entities. It allows

Creation of Permanent Establishments

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

benefits or subject to capitalization.

currently used in transfer pricing to formulary apportionment wherein the

with the subjective 'arm's length' analysis, formulary apportionment does

complexity in application to diverse business models and potential for double

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

and subjective valuation. While unilateral measures have been adopted by

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this

paper could help address the key issues if adopted through a framework of

stakeholder consultations and regular reviews. No single approach may be a

panacea but a combination with emphasis on coordination holds promise if

80% of the value of companies on the S&P 500 index. However, as opposed

between countries complex. The locationless nature facilitates greater tax

planning opportunities through strategic location of intangible holdings in

low/no tax jurisdictions.

Unlike physical assets which can be valued more objectively based on factors

like cost of purchase/production, depreciation etc., intangible assets have no

standard valuation methodology. Their value is more subjective, situational

and dependent on expected future earnings/cash flows. This subjective

valuation coupled with lack of comparable market transactions provides

scope for manipulation of transfer pricing between related entities. It allows

Creation of Permanent Establishments

presence through market jurisdictions. However, without a digital taxable

presence rule, intangibles may escape source jurisdiction taxes despite

economic allegiance with that market. This is a challenge given the growth of

digitalized and automation increasingly relying on intangible holdings rather

than physical operations.

Expenditure on Development Less Visible

benefits or subject to capitalization.

currently used in transfer pricing to formulary apportionment wherein the

with the subjective 'arm's length' analysis, formulary apportionment does

complexity in application to diverse business models and potential for double

taxing intangibles.

Digital Services Taxes

To address the tax challenges from lack of physical presence in the digital

economy, many countries have proposed unilateral digital services taxes

targeting the provision of online platforms, social media etc.

While such taxes aimed at user-base or revenue could help source countries

assert taxing rights, bilateral solutions through tax treaties may be more

be amendments to the existing tax treaty network through a multi-lateral

instrument.

intangibles in a coordinated manner.

intangible holdings, licenses and transfer pricing policies along with high-

level financial details for tax authorities to identify risks.

risk assessment, focused audits and dispute resolution. If designed

judiciously with appropriate confidentiality safeguards, mandatory rules may

gain greater acceptance than unilateral measures.

Preferential tax regimes targeting income from patented intangibles or IP

'Patent Box' regimes are prevalent in many countries as an incentive for local

across jurisdictions after addressing such issues of incompatibility, Patent

Boxes could aid resolution of some challenges in taxing income from

patented intangibles.

Common Approaches - Stakeholder Involvement and Co-ordination

bodies like the OECD/UN to arrive at minimum standards through stakeholder

In conclusion, taxation of the growing intangible economy poses unique

some countries, coordinated multi-lateral action is essential. Approaches like

formulary methods, digital taxable presence rules through tax treaties,

mandatory disclosure and coordinated Patent Box regimes evaluated in this